Massmart disposes non-core food units to Shoprite’s Checkers for US$89m

SOUTH AFRICA – Shoprite’s grocery unit Checkers has come to the rescue of South African retailer Massmart, by entering into a deal to acquire the rival’s non-core food assets for R1.36 billion (US$89m).

The sale businesses consist of wholesale and retail chains that are all focused on high-volume and low-cost distribution and are each reliant on high volumes and operational excellence as the foundation of price leadership, in the distribution of mainly branded consumer goods for cash.

Walmart-owned Massmart is currently in the middle of a turnaround that has now moved beyond shutting underperforming stores to divesting from fresh food retail and focus on its better-performing businesses as part of a plan to return to profitability.

“The sale marks another step in the group’s portfolio optimisation process and will, amongst other benefits, free up management time to enable increased focus on leveraging Massmart’s core merchandise and market strengths,” Massmart Chief Executive Mitch Slape said.

Under the deal, Shoprite is buying Cambridge Food, Rhino Cash and Carry business comprising of 56 grocery stores, including 43 adjacent liquor stores; three Fruitspot business; Massfresh Meat business with a meat processing facility; and 12 Masscash Cash and Carry stores.

The transaction is expected to close early in the first quarter of 2022 with the proceeds to be channelled by Massmart to pay down drawn bank facilities and for investments in e-commerce, general merchandise, do-it-yourself and wholesale food and liquor businesses, reports Moneyweb.

Slape revealed that the affected staff members will continue to be employed by the new owner on terms and conditions that are, on the whole, not less favourable than their existing employment contracts.

“The sale marks another step in the group’s portfolio optimisation process and will, amongst other benefits, free up management time to enable increased focus on leveraging Massmart’s core merchandise and market strengths,”

For Shoprite, a leader in high-volume and discount retail, the deal will give it a bigger slice of the R595 billion (US$39 billion) food and grocery retail market.

“We believe we can profitably run these operations,” Shoprite group chief executive Pieter Engelbrecht said.

He said the deal also gave Shoprite, South Africa’s biggest retailer by market capitalisation, immediate access to opportunities that were on its medium-term list.

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Game continues to bleed – sales

Recently, Massmart revealed that its half year sales to June 30, increased by a 4.4% to R41.3-billion (US$2.71 billion), but that was in comparison with the Covid-19 trading in 2020, when the strictest lockdown was in place and consumers were mostly confined to their homes.

Compared with 2019, however, it struggled to attract customers and push sales, with the H1 2021 figure representing a 5.7% slump when measured against the same period in 2019.

The group expects a headline loss of between R316.9 million (US$20.78 million) to R399.9 million (US$26.23 million), from a loss of R830 million (US$54.4m) previously.  

Its profit has been hit by an impairment of the carrying value of assets in Game of approximately R570 million (US$37.38m), as well as retrenchment costs “relating to the reorganisation of certain home office support functions”.

During the period under review, Game and low-cost grocery chain Cambridge were the worst performing units with sales plunging by 7.6% to R7.6-billion (US$498m) and 9.4% to R3.6 billion (US$236m) respectively.

For Makro, total sales increased by 13.5% to R13.7 billion (US$898m) over the comparable period, while total sales in its Cash & Carry business of R9.3 billion (US$609m) were 2.3% lower.

Due to ongoing lower activity in the corporate, hospitality, restaurant and catering industries, the group said its food sales remained under pressure, decreasing by 2.9% in Makro and 8% in Cash & Carry.

However, total liquor sales were 39.6% higher than the same period in 2020, which was impacted by the ban on liquor sales in place in April and May 2020.

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